RAVIKANTH JELLI,HYDERABAD vs. INCOME TAX OFFICER, WARD-11(1), HYDERABAD
What did the Tribunal hold?
The Tribunal held that estimation of income at 3% of the cost of goods put to sale is reasonable, following its previous decisions in similar cases. It also rejected a ground of appeal that did not arise from the assessment order.
What were the facts?
The assessee, a liquor retailer, failed to produce books of account and supporting vouchers for his claimed expenses. Consequently, the Assessing Officer rejected the book results and estimated the income at 5% of goods put to sale.
What were the issues?
Whether the Assessing Officer erred in rejecting book results and estimating profit without sufficient material, and if the estimated profit rate was excessive.
Which sections of the Income-tax Act were involved?
Not explicitly mentioned
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, HYDERABAD BENCHES “B” : HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
PER Smt. P. MADHAVI DEVI, J.M. : This is assessee’s appeal for the AY. 2014-15, against the order of the Commissioner of Income Tax (Appeals)-5, Hyderabad, dated 24-01-2018.
Brief facts of the case are that, the assessee, an individual, is in the business of retail trading of liquor, filed his return of income on 06-10-2014, admitting income of Rs. 5,97,770/-. Pursuant to selection under CASS, assessment was picked up for scrutiny. The Assessing Officer asked the assessee to furnish the books of account/bills and vouchers
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for verification. Since the assessee could not produce the books of account and the expenditure vouchers in support of his claim arrive at the net profit, the Assessing Officer rejected the same and proceeded to estimate the income of the assessee at 5% of the goods put to sale and brought it to tax.
2.1. Aggrieved, assessee preferred an appeal before the CIT(A), who confirmed the order of the Assessing Officer and assessee is in further appeal before us, raising the following grounds of appeal:
“1. The order of the Hon'ble CIT(A) is erroneous in law as well as facts of the case.
The Hon'ble CIT(A) ought to have held that the assessing officer erred in rejecting the book results without bringing any material on record.
The Hon'ble CIT(A) ought to have observed that the assessing officer erred in estimation of profit without pointing out any deficiencies in the accounts maintained by the assessee which were subjected to audit as per provisions of the IT Act.
The Hon'ble CIT(A) ought to have held that the assessing officer ought not to have resorted for estimation of profit by rejecting the book results in the absence of any supporting material on record.
Alternately, the Hon'ble CIT(A) ought to have observed that the assessing officer erred in estimation of the profit at 5% which is very high in the line of business.
The Hon'ble CIT(A) ought to have observed that the assessing officer ought to have followed the decision of the Hon'ble ITAT, Hyderabad in the case of Mis. Sai Venkateshwara Wines (ITA No.1198/Hyd/2015 dated 20.11.2015) wherein it was held that estimation of the net profit at 3% on purchases or sock put for sale was reasonable.
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The Hon'ble CIT(A) ought to have observed that the assessing officer erred in estimation of the profit at 12% on contract receipts which is very high in the line of business. 8. Any other ground will be raised at the time of hearing”.
Having regard to the rival contentions and the material on record, we find that in similar cases, this Tribunal has been holding that the estimation of income at 3% of the cost of goods put to sale is reasonable and both of us are signatories to various decisions holding as above. For the sake of convenience and ready reference, relevant paras in the case of M/s. Sai Venkateswara Wines in ITA No. 1198/Hyd/2015, dt. 20-11-2015 are reproduced here:
“5. Having regard to the rival contentions and the material on record, we find that the assessee has not maintained any books of account and therefore, the estimation of income is justified. It is only the rate at which the income is to be estimated is before us. A.O. has estimated the income at 5% of the cost of goods sold, while the assessee is seeking the estimation at 3% of the cost of goods sold. We find that in the case of Venkateswara Wines, Nizamabad (supra), the Coordinate Bench of this Tribunal has taken note of the decision of Hon’ble High Court of Telangana and Andhra Pradesh in the case of CIT vs. Kamlekar Shankar Lal (supra) to hold as under :
“6. Having regard to the rival contentions and the material on record, we find that the AO has called for books of account of the assessee but the assessee had failed to produce the same. Therefore, AO had estimated the income of the assessee at 2.5% of the turnover. The CIT wants the same to be estimated at 5% of the total turnover because the Tribunal in the case of an assessee carrying on the same business of sale of IMFL has estimated the income at 5% of the turnover. This, in our view, is not justified as held by the Coordinate Bench of this Tribunal. The uniform net profit cannot be adopted in each and every case of similar business. Estimation of net profit must be on the basis of facts involved in each and every case. Therefore, in our view, there is no error committed by the AO in estimating the profit at 2.5% of the total turnover. Thus grounds of appeal No.2 & 3 are allowed.”
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5.1. In the case before us, the assessee is agreeable to the estimation of income at 3% of the cost of goods sold. As the facts before us are similar to the facts before the Tribunal in the case of Venkateswara Wines, Nizamabad (supra) and the uniform rate of profit cannot be adopted in the case of every assessee in similar business, we allow ground No.2 of the assessee”.
3.1. Respectfully following the same, Ground Nos. 2 to 6 raised by assessee are allowed.
3.2. Ld. Counsel for the assessee submitted that Ground No. 7 does not arise from the assessment order, hence the same is rejected.
In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 13th March, 2019
Sd/- Sd/- (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated 13th March, 2019 TNMM
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Copy to :
Ravikanth Jelli, C/o. B. Narsing Rao & Co., Chartered Accountants, Plot No. 554, Road No. 92, Jubilee Hills, Hyderabad.
Income Tax Officer, Ward-11(1), Hyderabad.
CIT(Appeals)-5, Hyderabad.
Pr.CIT-5, Hyderabad.
D.R. ITAT, Hyderabad.
Guard File.
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